Goldman Sachs: If History Repeats, U.S. Stocks Should Fall With EM

By Ben Levisohn

For those worrying if the emerging market selloff will drag down U.S. stocks, Goldman Sachs answers with a resounding yes.

AFP

Goldman’s Ben Snider and team write:

As growth-sensitive risk assets, US and EM equities are inherently correlated. 20 of the past 25 years saw the S&P 500 and MSCI EM post directionally-identical returns, with the high-beta EM index returning an average of 2.7 times the US equity return in those years. In 2013, however, the S&P 500 rocketed while EM equities traded down modestly in USD terms, lagging by 30 percentage points on the year.

Still, it’s more complicated than a one-word answer. Snider explains:

…domestic-facing US stocks outperform their EM-facing counterparts. Our sector-neutral BRICs basket of 50 S&P 500 stocks with the highest revenue exposure to EM has underperformed our Domestic Sales basket during 9 of 10 EM pullbacks since its inception in 2009, by a median of 4 pp. The two baskets performed in line with one another in the 10th episode. So far in 2014 the Domestic basket has outperformed the BRICs basket by roughly 50 bp.

Stocks in the Goldman Sachs Domestic Sales basket include United Health Group (UNH), Union Pacific (UNP) and Macy’s (M), while Whirlpool (WHR) and Avon Products (AVP) are included in its BRICs Sales basket.

Shares of United Health Group have gained 1.8% to $72.55 today, while Union Pacific has risen 1.8% to $175, Macy’s has advanced 1.3% to $54.07 and Avon Products is up 0.8% at $14.89. Shares of Whirlpool have fallen 1.2% to $139.9.

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JANUARY 30, 2014 2:38 P.M.

Bill Fold wrote:

It's just Goldman Snacks trying to manipulate the market, again. They're shorting it and trying to cause a selloff because they're doing gawd's werk. They are also trying to manipulate biotechs too, especially Celgene because gawd told them to do this.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.